Randomly Noted

A lot has happened in the past few years to discourage individual investors in U.S. stocks.

Credit crunch, recession, weak economic recovery, still-slumping house prices and more have taken their toll on small investors’ psyches.

More fundamental is the sense that the stock market, as even knowledgable investors used to know it, no longer exists. Not in a  world of high-frequency traders, drak pools that make up significant amounts of daily trading liquidity and all the rest.

So it’s not necessary a causal relationship, but worthy of note, that since the “flash crash” of  May 6 every single week has seen an outflow of money from stock-based mutual funds.

Securities and Exchange Commission Chairman Mary Schapiro made that point in a speech today. “Retail broker-dealers have told us that their customers – individual investors – have pulled back from participating in the equity markets since May 6,” Schapiro added.

It’s hard to find fault with that inaction given the still hard-to-understand nature of that wild spring afternoon aptly named the “flash crash,” when stock prices took an amazing free fall only to recoup much of those losses minutes later.

Though Schapiro employs a lot of question marks in her prepared remarks for the Economic Club of New York speech, you get the sense from the speech that the status quo of stock market structure in the U.S. will not last.

 One essential notion raissed by Schapiro is compelling. In days of yore, market specialists had obligations that in the SEC chairman’s words supported the “stability and fairness of the markets.”

Now the firms that are the most active don’t bear the titles or responsibilities of those specialist firms, whose role became “obsolete.”

And this quote sums it up. “The issue, however, is whether the firms that effectively act as market makers during normal times should have any obligation to support the market in reasonable ways in tough times,” Schapiro said.